FCC: AT&T, Verizon mobile programs violate open web rules

Regulators say AT&T's DirecTV Now and Verizon's FreeBee program, which let you stream video without it counting as data, violate net neutrality.

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The Tom Wheeler-led Federal Communications Commission is taking a final shot at AT&T and Verizon Wireless.

On Wednesday, the FCC's wireless bureau issued a report (PDF) spelling out how AT&T's DirecTV Now online video service and Verizon's FreeBee Data 360 offer, which allow companies to pay for wireless data service that customers use, violates the agency's open internet rules. The rules adopted in 2015 were supposed to prevent wireless and broadband providers from giving themselves an unfair advantage over their competitors.

While this puts the current version of the FCC on the record as against these programs, it ultimately may not mean much. Tom Wheeler is slated to step down, once President-elect Donald Trump is sworn in. It's unlikely the Republican-led agency will take action.

FCC Chairman Tom Wheeler

The Federal Communications Commission under Chairman Tom Wheeler has come down hard on zero-rating offers from AT&T and Verizon.

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Republican Commissioner Ajit Pai, who's expected to succeed Wheeler as the interim chairman of the FCC come Jan. 20 until a permanent chairman is appointed, said in a statement that the current administration's "partisan, political agendas" will "harm investment and innovation."

These programs fall under the broader category of "zero-rating" services, or controversial plans that let internet service providers not count data usage for certain applications against a customer's monthly cap. Though companies say the plans benefit consumers by offering reduced pricing on wireless service, critics say they give the wireless companies an unfair advantage over competitors and violate the 2015 net neutrality rules designed to protect against this.

The biggest problem the FCC has with AT&T's DirecTV Now offer has to do with how much the carrier is charging rival streaming services for access to its data network. Because AT&T has priced its new DirecTV Now service so aggressively, the FCC doesn't see how other streaming video companies could possibly compete.

Both AT&T and Verizon say their programs, which charge video providers instead of customers the cost of streaming the data, are open to any video company willing to pay the cost of customer data. But the FCC says it's concerned AT&T and Verizon still have a cost advantage over rivals, since they provide the streaming service and own the networks.

"All indications are that AT&T's charges far exceed the costs AT&T incurs in providing the sponsored data service," the report states.

The agency concluded that Verizon's offer works in a similar fashion.

The agency didn't condemn all so-called zero-rating plans, and it gave its blessing to T-Mobile's Binge On offer, which doesn't require video providers to pay to participate in its zero rating offer.

The FCC didn't specifically outlaw zero-rating in the rules it passed in 2015, but it said it would look at such plans on a case-by-case basis. This is the first real test of the rules and marks the first time since the regulations were passed that the FCC has flexed its regulatory muscles in enforcing them.

AT&T defended its offer as a benefit for consumers and said it hopes the new administration "continues to support a competitive marketplace that lowers costs and increases choice for consumers."

Verizon also said it didn't agree with the FCC's conclusion, and it hopes "the next FCC will take into account the views of our customers who greatly benefit from watching professional football, soccer, basketball and other great content...free of data charges."

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